Help Yourself with Tackling Your Payroll Rigmarole

  1. KYC (aka) know your customer, or in this case, your employee

You need to know some basic things about employees to be able to withhold a part of their salaries for income tax, social security or Medicare taxes. Basic information like social security number, address, marital status, number of children etc. are required (and need to be updated as and when they change). Firstly, ensure independent contractors or vendors aren’t being classified as employees. Secondly, make sure all employees have filled in the W-4 forms, and are informed that the information can and must be updated when there is a change.

  1. Figure out withholding

You need to track all employees’ pay to understand what needs to be withheld and what is exempt from withholding. Various fringe benefits have different tax status. Irrespective of what is or isn’t subject to payroll tax, the data needs to be recorded on the W-4 forms.

  1. When are the taxes due?
  • Companies with a total payroll liability of $2,500 a year can pay the tax annually.
  • Most small businesses deposit tax on a monthly basis by the 15th day of the month, or by the following business day if the 15th day is a holiday.
  • Companies with a deposit of over $50,000 during a lookback period (generally 12 months) pay bi-weekly.

You know when payments are due, so mark them in a calendar. Set up an electronic account to automatically remit taxes on due dates.

  1. Use a separate account

Money withheld for income tax etc. is money that doesn’t belong to the company. It has been withheld as employee tax payment specifically for a reason. So you can’t spend it on anything required for you or the enterprise. It’s best you maintain a separate account for this so you don’t accidentally spend this money. Link this account to EFTPS.gov so you can electronically pay your tax. And remember that even if you are in a financial situation you must still pay this money because it was withheld from the employees for this purpose only.

  1. Security

If your payroll record isn’t secure, sensitive information about the employees as well as the company can be compromised. Remember, this data contains personal as well as financial information about employees – birthdays, social security numbers, bank accounts etc. with the abounding number of phishing scams, it is only wise to secure this data and limit the access to employee information.

  1. (*Bonus point) Using the Write Checks Window in QuickBooks to pay payroll taxes and loans:

Firstly, you should be entering a bill before you write a cheque, and then pay it off against the online bill entry. This maintains a record of the accounts payable. Secondly, payroll taxes (and loans) shouldn’t be written off in the regular manner of an Account Payable. QuickBooks records the amount of payroll tax a business owes, and has a Payroll Liabilities window to maintain this separately and make the proper deductions. Otherwise you may only have a naïve understanding of cash flows without really knowing where the money went. Learn the 3-step set-up to quickly setup payrolls on QuickBooks.

These are simple yet important pointers to remember with payroll. When you try to follow these, you won’t find yourself being strangled by the miring consequences that come from payroll tax mistakes, and your business will be better for it.

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